Last Year’s Performance – How Did You Do?

How did your investments do last year? You should compare your investment performance with their benchmarks. Here is what to do.

Do it yourselfers
If you handle your own investing the review can give you a guide of whether or not you are managing pretty well or doing poorly. If doing well then good for you and keep on doing what you have been doing. If off base, then maybe you need a change in strategy or should engage a professional investment manager. Either way, this is a method to perform a reality check.

Many brokerage accounts provide on their site monthly and annual performance figures. Once you know how to access it, it is quite easy to look at. Usually these are for your entire account and are not broken done into asset classes. The performance figures also provide dividends and interest amounts and are cash weighted taking into account cash in and out during the year. Measuring your performance against the benchmarks provides period to period changes and trends and is a great way to monitor, review and keep track of how your investments are doing.

Those that use an investment manager
If you use an investment manager this gives you a way to assess their value. Are they at least keeping up with the indexes or falling behind? When comparing their performance you would need to use the proper measures which means you need to use the appropriate benchmarks. For instance, if you have a stock portfolio that includes various classes of investments such as large, mid, and small cap value and growth, that is six categories and you should measure these groups by benchmarks for each category. If you also have foreign and/or emerging economy stocks that could be six or twelve more. A simplistic way is to measure your entire stock portfolio against the S&P 500 or Total Market index. If you are doing worse than this, then maybe you should stick to the type of stocks represented by that index and not invest in a little of this and a little of that.

As to bonds, the investment community measures performance by total return. I do not think that is a valid measure for most people that invest in fixed income for a secure base with a cash flow they expect or count on. I’ve gone over this ad nauseam so will not repeat my thoughts now. I think comparisons based on total return are fallacious and do not reflect the reality of why people invest in fixed income. However, the fixed income portion of your portfolio should be separated out of your total portfolio before applying the stock market benchmarks.

Performance measurement is something that EVERY investment manager should provide routinely to their customers at the end of each year. Look it over and evaluate how they did. If you do not know how to do it or find it confusing I can’t imagine a manager who would not be willing to meet with you to review it in person (or by a phone conference if separated by distance). That is their job and you are paying for that service, and you should ask for it if they do not provide it routinely.

Reason for investing
Measurement is a clinical procedure and provides a way to examine performance. However, the big picture of investing is to achieve goals and secure your financial future. Whatever the numbers, how you did should be reviewed against your overall plans to see if you are on a track to achieve them. That is the essence of your investing. It is a very serious undertaking and should not be underestimated or lost track of.

What About It?

The Partners’ Network blog gives Ed’s take on conventional wisdom that are really fictions. We show you how the Emperor’s New Clothes fable is truer today than it might have been when first written with clear plain simple logic that will empower you to protect yourself and your financial and personal security.

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About Ed Mendlowitz

Ed’s 40+ years’ experience advising clients and colleagues across broad spectrums of business, investing and financial empowerment and security is second to no one. His insights and guidance have been shared with Congress, some of the most famous people in the world and entrepreneurs and executives in all industries and professions. He is the go to person for many clients and other CPAs and his observations will be shared regularly in his blogs welcoming feedback.